08 / 12 / 21 - 5 minute read
But the social value of real estate – the extent to which it contributes to economic, social and environmental well-being – goes beyond its role as a financial asset. After all, the built environment affects people and places in profound ways. This makes it critical to think through what real estate contributes to broader questions of place-making and the creation of inclusive communities – and what it could and should contribute to them.
I recently worked with COCREATIF’s Dr. Eime Tobari to develop a social value ‘roadmap’ for the industry. The report was commissioned and published by the Urban Land Institute (ULI).
Zooming in on the ‘S’ in ESG: a roadmap for social value in real estate aims to guide the industry towards understanding, capturing and enhancing its social value.
It explores how real estate players can incorporate this concept into corporate strategy and practice – including investment.
We argue that doing so is a route to a robust, enduring and trusted future for the industry. With the COVID-19 pandemic having both sharpened social value’s relevance and created an opportunity to do real estate differently, putting people and place at its heart represents a way for the industry to start addressing social and spatial inequalities and, through this, to contribute more fully to sustainable and inclusive development.
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Our report comes with real estate players feeling increasing concern over issues such as inequality and affordability. While debate can make it seem that ESG comes down to environmental challenges (which real estate also faces), it is heartening that the industry is starting to acknowledge the social dimensions – especially when housing quality and affordability can be an important contributor to social challenges.
At the same time, the industry is also increasingly responding to investor and stakeholder demand for measures of its non-financial performance. Social value is an important one of these, as ULI and PwC’s recent Emerging Trends 2021 Europe report underscored.
However, the industry’s lack of consensus on measuring real estate’s social value makes it challenging for it to identify and communicate this value.
In turn, this poses a serious obstacle to increasing the industry’s broader contribution to society while also generating appropriate risk-adjusted returns.
Besides the important measurement problem, we identified several other challenges through our survey and interviews with stakeholders across Europe. These include:
- Political, economic and business culture
- Focus on maximising financial returns
- Fragmentation and lack of alignment between stakeholders
- Focus on measurable standardised metrics rather than real-world outcomes
- Lack of transparency and consensus over social value creation
- Lack of knowledge and skills
These difficulties can be overcome, but this requires an alignment across stakeholders in the real estate value chain so that social value creation becomes an integral part of decision-making. Since no one measurement tool will serve all stakeholders or purposes, we emphasise a principles-based approach to embedding social value.
This leads us to offer a decision-making framework that highlights the importance of first defining objectives and then using appropriate metrics and measurement approaches – depending on the nature of intended outcomes. The industry needs to build its knowledge and skills in social value measurement and develop more standardised and consistent approaches to measurement and reporting.
Building on this, our roadmap highlights six action areas, from a government-led place-based vision and strategy to collaboration among partners. The essential role of collaboration in social value creation is one of our key findings: whether in a public/private partnership or the classical landlord/tenant relationship, moving from a transactional (or even confrontational) approach to a relational one is vital.
Our case studies highlight how social value creation results from a dynamic interaction between effective demand and effective supply. Those on the demand side include residents, businesses, local government and community organisations with specific demands and investment needs. Those on the supply side include developers, design firms and investors who can offer solutions and services with the potential to deliver social value in ways that are affordable and implementable.
One notable study is Demain Montreal. This consortium of a real estate investor (Ivanhoe Cambridge), a construction company (Pomerleau) and a real estate manager (Cogir) won the C40 ‘Reinventing Cities’ competition. Their carbon-neutral and resilient urban regeneration mixed-use development (one-third affordable and social housing) helps residents and the community participate in the circular economy.
Key aspects include flexible spaces for zero-waste grocery stores, plus an urban farm, as well as inspiration from the Passivhaus and Zero Carbon building standards.
Other studies include the Brent Cross Town regeneration in London; Porta Nuova in Milan; and Reinventer Paris.
Our survey of real estate professionals makes clear the essential role of leaders in driving social value creation. Nearly twice as many stakeholders (50) identify leadership in their organisation as the top response as offer the next most popular – clear definition and advocacy across the industry, and greater pressure from clients/investors/stakeholders (each volunteered by some 30 respondents).
Although three-quarters of stakeholders believe measuring social and environmental outcomes should be required and monitored by industry standards or legislated and standardised, a lower proportion sees this happening in the coming years.
In practice, creating social value through real estate means putting local people, places and the planet at the heart of development and investment. COVID-19 is a wake-up call for the industry. While the pandemic has brought major risks and challenges, it also opens opportunities to rethink how to connect development to local, place-based needs and priorities and consider the industry’s role in helping tackle social and spatial inequalities. This will need to focus on how the public and private sectors can co-create social value and where opportunities lie to create social value beyond business as usual.
Sarah Forster is CEO and Co-Founder of The Good Economy Partnership. Sarah has worked at the forefront of finance for positive impact for more than 25 years, working in the fields of sustainable economic development, development finance and impact measurement and management. Sarah co-founded The Good Economy in 2015 to enhance the role of business and finance in inclusive and sustainable development. She acts as a trusted advisor to clients across the private, public and social sectors.